The Reserve Bank of Malawi (RBM) says the drop in money supply growth and private sector credit in the first quarter (Q1) reflects the impact of tight monetary policy stance to contain inflation currently at 29.2 percent.
But economists have warned that limited access to capital for both capital expenditure and daily operations for the private sector could frustrate job creation efforts and production.
The RBM Second Monetary Policy Report for 2025 and the Financial and Economic Review for Q1 noted the deceleration of the two variables and attributed it to the central bank’s monetary policy intervention to reduce liquidity in the financial system.
The monetary policy report, for instance, said the annual growth rate of broad money decelerated to 33.9 percent in Q1 of this year from 48.2 percent in Q1 of 2024.
Reads the monetary policy report in part: “The deceleration mainly reflects the maintenance of a tight monetary policy at 26 percent and the continual effects of the upward adjustment of the liquidity reserve requirement (LRR) ratio by the RBM in the previous quarter, which aimed at reducing excess liquidity from the banking system.
“Similarly, the growth of credit to the private sector decelerated to 20.8 percent in March 2025, down from 29.4 percent in the previous quarter, signalling a tightening of financial conditions within the economy.”
Speaking in an interview on Monday, economist and former minister of Finance Joseph Mwanamvekha, while commending RBM for reducing money supply, said private sector credit should go up to enable the economy expand, adding that public sector credit should go down to allocate capital for production.
He said: “There is a need to tighten monetary policy to rein in inflation and to ensure inflation does not continue increasing exponentially.
“However, the reduction of credit to the private sector is worrying and should be discouraged.”
Mwanamvekha said the private sector and the economy can grow only if companies and small and medium enterprises are able to access funding from commercial banks at reasonable and competitive rates.
“RBM should not allow the government to crowdout the private sector by lending more to the government than the private sector,” he said.
Finance expert Brian Kampanje, in an interview on Monday, said limited access to debt capital for both capital expenditure and daily operations for the private sector could thwart job creation efforts while public sector credit demand could exert pressure on interest rates.
He said: “The interest rates on the government securities such as Treasury bills [T-bills], Treasury notes and Treasury bonds will go up.
“This will push up the policy rate and raise the cost of debt. Banks might become more risk averse and this can significantly affect economic growth.”
Kampanje further noted that the increase in LRR ratio in November 2024 to 10 percent made banks more risk-averse to lend more to the private sector and opted to invest in public securities such as T-bills and stocks.
“The banks prefer lending to salaried individuals in the form of consumer loans rather than credit for production as per the analysis of the published financial statements of the banks,” he said.
Economist and Business Partners International Malawi country manager Bond Mtembezeka warned that the decreasing private sector credit could result in contraction of the economy.
“Decreased private sector credit can limit business expansion leading to reduced economic growth while excessive government borrowing can fuel inflation reducing the purchasing power of consumers,” he said.
On his part, investment analyst Kondwani Makwakwa warned that reduced access to credit for the private sector limits business expansion, investment and daily operations.
He said private sector credit is essential for funding capital investments and maintaining productivity.
The RBM report further indicated that month-on-month inflation rate exhibited a notable moderation for both food and non-food components.
Food inflation decreased from six percent in January 2025 to 0.5 percent in March 2025 while non-food inflation eased to 1.4 percent in March from 2.4 percent in January 2025.
